'Generous' tax breaks for shale gas industry outlined

Bowland shale drilling rig The UK is believed to have large resources of shale gas that have yet to be extracted

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The government has outlined plans to give tax breaks to companies involved in the UK's nascent shale gas industry.

It has proposed cutting the tax on some of the income generated from producing shale gas - found in underground shale rock formations - from 62% to just 30%.

The plans would make the UK the "most generous" regime for shale gas in the world, the government said.

But they have been criticised by environmentalists, with Friends of the Earth calling them a "disgrace".

Greenpeace added that communities affected by fracking - the technique for extracting shale gas - faced a lot of disruption for very little gain.

Chancellor George Osborne says Britain must be" at the forefront of the shale gas revolution"

Chancellor George Osborne said shale gas was a resource with "huge potential" for the UK's energy mix.

"We want to create the right conditions for industry to explore and unlock that potential in a way that allows communities to share in the benefits," he said.

"I want Britain to be a leader of the shale gas revolution because it has the potential to create thousands of jobs and keep energy bills low for millions of people."

The shale gas firm Cuadrilla welcomed the news and said it would consider the implications.

"Whilst we are still in the exploration phase, we believe that shale gas has the potential to make a considerable contribution to the UK's energy supply and security, while at the same time creating thousands of jobs and generating very significant tax revenues and community benefits," said Cuadrilla's chief executive, Francis Egan.

Infographic showing shale gas extraction

The UK is believed to have large resources of shale gas.

A recent report from the British Geological Survey estimated there may be 1,300 trillion cubic feet of shale gas present in the north of England alone - much of it in the Bowland Basin under Lancashire.


Just how generous are these tax breaks?

Gas production is typically taxed at 62% although in some parts of the north sea long standing operations are taxed at up to 81%.

So the 30% tax rate proposed for shale gas does look generous.

The government insists it is in line with what already exists for small or challenging fields offshore.

What's more it won't be for the lifetime of the well.

In practice part of the profits from the well will be exempt from the higher tax rate. Just how much is still to be decided, but it will be linked to the amount of investment that a firm has made.

The industry insists the tax break is necessary as initial costs will be high and there is still much uncertainty about how much oil and gas will be liberated from our shale deposits.

But with up to 50 wells expected to be drilled in the next 2 to 3 years - the hope from the government is that this tax announcement will help to kick-start what could be a hugely important new industry.

Drilling companies have previously estimated that they may be able to extract about 10% of this gas - far in excess of the three trillion cubic feet of gas currently consumed in the UK each year.

However, the industry is still in its infancy with a handful of companies holding licences for shale gas exploration in the UK, none of which have begun extracting gas.

Water quality

In backing shale gas exploration, the government points to the experience of the US, where a shale gas boom has had a dramatic effect on the energy sector.

Under its plans, the tax break would apply to a proportion of the income generated from shale gas production. What that proportion is will be determined after a consultation.

BBC industry correspondent John Moylan says the industry regards the tax incentives as necessary, as costs are likely to be high during the initial exploration phase over the coming years.

The government has also confirmed plans to give communities that host shale gas sites £100,000 per site, and up to 1% of all revenues from production.

That is designed to offset some of the controversy surrounding the process of fracking.

Science Editor David Shukman explains the process of fracking

There are concerns the process, which involves pumping high pressure water, sand and chemicals into rock to force out the gas, is related to water contamination and even earth tremors.

Start Quote

Promising tax hand-outs to polluting energy firms that threaten our communities and environment, when everyone else is being told to tighten their belts, is a disgrace”

End Quote Andrew Pendleton Friends of the Earth

Water companies have warned that the quality of drinking water must be protected "at all costs".

Water UK, which represents the UK water companies, points out that fracking requires huge amounts of water which could put a strain on local supplies.

It also says the drilling and the fracturing process could damage water pipes.

"The water industry is not taking sides. If it (fracking) goes ahead we want to ensure corners are not cut and standards compromised," said Jim Marshall, policy and business adviser at Water UK.

Environmental groups argue that investment in the industry will divert attention from the need to develop renewable sources of energy.

Andrew Pendleton, from Friends of the Earth, condemned the move.

"Promising tax hand-outs to polluting energy firms that threaten our communities and environment, when everyone else is being told to tighten their belts, is a disgrace," he said.

"Ministers should be encouraging investors to develop the nation's huge renewable energy potential. This would create tens of thousands of jobs and wean the nation off its increasingly expensive fossil fuel dependency."


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  • rate this

    Comment number 495.

    And of course notice that this announcement is made on the last day on which Parliament sits before its long summer break, so that an emergency debate cannot take place. The corruption in this government is breathtaking. This of course flies in the face of GO's protestations to get the deficit down - you don't get it down by reducing the tax level, George.

  • rate this

    Comment number 494.

    Do you think the British people will see any benefit of this gas... Our bills will still go up and up.... This goverment has no mandate to govern or bring in changes without the people's conscent.. Even if they had won by one vote I would have some respect.... These are major changes like the post office being privatised that should be elected on at election time... General election now..........

  • rate this

    Comment number 493.

    Amazed at the amount of bigotry, ignorance and misinformation that is being spewed out by the vitriolic left and 'greens'
    Thank goodness no one listens to them or we would still be in caves
    Luddites of the 21st century blinded by dogmatic ignorance of last centuries politics
    The worrying thing is, I guess the majority are young.
    What is bringing on this paranoia?

  • rate this

    Comment number 492.

    If your house is on the UK fracking map, watch it's value go down over the next 10 years as people try to scramble out of these areas


  • rate this

    Comment number 491.

    What's the bet that soon we'll all be told that our gas prices have to go up to pay for the infrastructure to get the shale gas out?

  • rate this

    Comment number 490.

    If something effects the environment in such a negative way why give it a tax cut? There needs to be an insurance charge to fix any issues such as tremors, water table contamination and land contamination and this should be what part of the tax is used for and the rest should be used for UK product development of sustainable fuel innovations such as bio based fuel cells and gravity batteries.

  • rate this

    Comment number 489.

    @328.Sideways Thinking
    This is about creating a balanced energy portfolio, yes we need to continue to push renewables but they can not sustain our energy needs alone,
    What happens when "we" run out of fossile fuels?
    Do we import them from other countries or even Mars?

    Once it has gone - they can no longer be renewed.

    Best to get started on cleaner forms of nuclear now than procrastinate

  • rate this

    Comment number 488.

    Tax breaks OK for Big Oil, but not for UK business: Duplicity much, Mr Osbourne?

    I apologise if the character count limits my definition for you. I define poverty by the amount of financial independence, or "wealth" one has, among other criteria. An employed person has more of both than the unemployed, or indigent for example.

    Let's talk about the article, not UKStudent's tangent eh...

  • rate this

    Comment number 487.

    Tax break is a carrot, once profitability has been achieved, carrots are removed
    yeah, right. More likely they will refuse to pay any tax in the manner of so many other big businesses! These people are rent seekers rather than entrepreneurs.

  • rate this

    Comment number 486.

    This is happening on a huge scale in the US already. It has hugely reduced the cost of gas. Lower price gas = lower energy bills.

    The alternative to this is nuclear. Which is expensive and unattractive. Renewables are part of an answer but very expensive. In a world without any perfect choice this looks like a no brainer

  • rate this

    Comment number 485.


    What a load of condescending drivel.

    People don't agree with you so they are automatically "ignorant"?

    Your point of view is the only one that counts?

    Do you have a degree in pomposity?

    Environmentalists opposed nuclear power stations in UK, we now have to get some of our power from France, who provide it from their nuclear power stations.

    Stupid, damaging Greens.

  • rate this

    Comment number 484.

    the Industrial Revolution, not the state, did that"
    The UK state was a high tax state to fund the Navy & imperial expansion that provided the security and markets for industrial expansion. It provided a liberal regulatory framework for the industrial investment & high import tariffs and protectionism for that industry. The notion that it was a free trading, libertarian nirvana is nonsense.

  • rate this

    Comment number 483.

    Nuclear - modern, clean, efficient, economically reliable, sustainable & very safe. It has a LOT of room to grow & innovate (liquid fluoride thorium reactors, fusion power etc).

    Fossil fuels - obsolete, dirty, economically volatile, running out & killing many people with lung diseases & climate change. The technology is at its peak.

    Burning oil & gas for fuel is unnecessary, wasteful & harmful.

  • rate this

    Comment number 482.

    The usual form with energy companies is up-front above-inflation price rises to pay for "investments".

    Not yet in production - no problem, we'll give you up-front tax cuts instead.

    Heads they win, tails they win, laughing all the way to the bank,

  • rate this

    Comment number 481.

    I've always said Culprits guilty of property damage, by pollution, should be held personally liable for restitution in a court of law"

    Who will our descendants sue? People who are dead. How will they show the emmissions from specific individuals or corporations caused the damage? They can't, we're all doing it. You really are disengenuous and deluded.

  • rate this

    Comment number 480.

    I would rather we extract and use our own gas than be reliant on the Russians. This is an opportunity to have an energy supply for the next few decades during which we can build a solid and reliable renewable supply so that we never have anyone else holding us to ransom to keep the lights on. BUT, we must not waste the opportunity.

  • rate this

    Comment number 479.

    i wonder if Osborne can tell us whose Energy bills are low because ever since privatisation mine has gone up by more than inflation

    And the reasons we are given is so that the companies can invest, so why do they now need a tax break too?

  • rate this

    Comment number 478.

    333. Dan

    If shale gas is so cheap to produce then why do the energy companies need a tax break to make it competitive?

    For the same reasons that the shale boom in the US is a scam. Well costs are high, and per-well production declines very rapidly, so you have to keep on drilling. Measured in terms of though-life project economics, shale is nearly as useless as biofuel.

  • rate this

    Comment number 477.

    number 447.jamsponge

    48% tax reduction for energy companies.
    1% of revenues for local communitues.

    If that doesn't wake people up to where this governments priorities are then nothing will.

    Read some of the fact less opinions on here.....we are way past ever getting to critical mass. Even countries with revolution in their bloody are majority apathetic....maybe something in the water!

  • rate this

    Comment number 476.

    The advantages of short term boosts to shale gas are (I think) acceleration of investment leading to - short term dip in gas pricing, capital spending possible higher tax revenues, possbility of building expertise/IP to export (main benefit longterm?)

    Drawbacks could include long term higher gas costs not reduced / supplies exhausted quicker, lower overall tax revenues, inferior methods/waste


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